The Three Numbers That Toughen Jardine Matheson Holdings

Conglomerates are sometimes criticised for being inefficient. Investors believe that a disparate collection of businesses cannot be run gainfully. But conglomerates such as the Hong Kong-based “hong”, namely Jardine Matheson (SGX: J36), has shown that this is not necessarily true.

Jardine Matheson has over the years been able to deliver a consistently high Return on Equity (RoE). Over the last ten years, the RoE has been as high as 33% but more recently it has moderated to around 9%, which is still higher than the market average.

Jardine Matheson’s striking RoE can be traced back to its relatively high Net Income Margin before minority interest of 10.1%. This is slightly lower than the average for Singapore’s blue chips of 14.8% but, nonetheless, impressive.

The “hong” is also very good at making use of its assets, which is likely to silence critics of conglomerates. An Asset Turnover of 0.6 implies that the company generates $60 in sales for every $100 of assets at its disposal. The average for the 30 companies that make up the Straits Times Index (SGX: ^STI) is around 0.5.

Interestingly, Jardine Matheson is not highly leverage. It has around three times more assets than liabilities. This works out to a Leverage Ratio of 1.48.

By breaking apart the Return on Equity of conglomerate Jardine Matheson, it is easy to see how the “hong” stays tough. Its RoE of 9% is the product of a striking Net Income Margin of 10.1%; an efficient Asset Turnover of 0.6 and a modest Leverage Ratio of 1.48.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.